Information Services Group Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ​ INFORMATION SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except par value) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ ​ 2022 2021 ASSETS ​ ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 19,749 ​ $ 47,521 ​ Accounts receivable and contract assets, net of allowance of $ 354 and $ 40 , respectively ​ 71,993 ​ 64,344 ​ Prepaid expenses and other current assets ​ 6,201 ​ 4,245 ​ Total current assets ​ 97,943 ​ 116,110 ​ Restricted cash ​ 76 ​ 88 ​ Furniture, fixtures and equipment, net ​ 5,742 ​ 5,293 ​ Right-of-use lease assets ​ 3,417 ​ 5,293 ​ Goodwill ​ 90,414 ​ 90,790 ​ Intangible assets, net ​ 10,820 ​ 12,410 ​ Deferred tax assets ​ 3,578 ​ 2,197 ​ Other assets ​ 2,017 ​ 4,613 ​ Total assets ​ $ 214,007 ​ $ 236,794 ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 9,698 ​ $ 16,162 ​ Current maturities of long-term debt ​ 4,300 ​ ​ 4,300 ​ Contract liabilities ​ 7,056 ​ ​ 7,049 ​ Accrued expenses and other current liabilities ​ 22,554 ​ ​ 29,327 ​ Total current liabilities ​ 43,608 ​ ​ 56,838 ​ Long-term debt, net of current maturities ​ 66,435 ​ ​ 69,490 ​ Deferred tax liabilities ​ 2,864 ​ ​ 2,824 ​ Operating lease liabilities ​ 2,370 ​ ​ 3,481 ​ Other liabilities ​ 5,088 ​ ​ 5,768 ​ Total liabilities ​ 120,365 ​ ​ 138,401 ​ Commitments and contingencies (Note 8) ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.001 par value; 10,000 shares authorized; none issued ​ — ​ ​ — ​ Common stock, $ 0.001 par value, 100,000 shares authorized; 49,362 shares issued and 47,934 outstanding at September 30, 2022 and 49,362 shares issued and 48,856 outstanding at December 31, 2021 ​ 49 ​ ​ 49 ​ Additional paid-in capital ​ 227,493 ​ ​ 237,628 ​ Treasury stock ( 1,428 and 506 common shares, respectively, at cost) ​ ( 9,131 ) ​ ​ ( 3,871 ) ​ Accumulated other comprehensive loss ​ ( 11,739 ) ​ ​ ( 6,940 ) ​ Accumulated deficit ​ ( 113,030 ) ​ ​ ( 128,473 ) ​ Total stockholders’ equity ​ 93,642 ​ ​ 98,393 ​ Total liabilities and stockholders’ equity ​ $ 214,007 ​ $ 236,794 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 2 INFORMATION SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2022 2021 ​ 2022 2021 Revenues ​ $ 68,836 ​ $ 71,095 ​ $ 212,100 ​ $ 208,263 Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Direct costs and expenses for advisors ​ 39,786 ​ 43,249 ​ 125,111 ​ 127,412 Selling, general and administrative ​ 20,334 ​ 19,236 ​ 60,806 ​ 58,768 Depreciation and amortization ​ 1,286 ​ 1,347 ​ 3,872 ​ 3,962 Operating income ​ 7,430 ​ 7,263 ​ 22,311 ​ 18,121 Interest income ​ 37 ​ 65 ​ 126 ​ 196 Interest expense ​ ( 824 ) ​ ( 538 ) ​ ( 1,997 ) ​ ( 1,794 ) Foreign currency transaction gain (loss) ​ 131 ​ 1 ​ 248 ​ ( 2 ) Income before taxes ​ 6,774 ​ 6,791 ​ 20,688 ​ 16,521 Income tax provision ​ 1,218 ​ 2,370 ​ 5,245 ​ 4,570 Net income ​ $ 5,556 ​ $ 4,421 ​ $ 15,443 ​ $ 11,951 Weighted average shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 47,888 ​ 48,751 ​ 48,191 ​ 48,521 Diluted ​ 49,844 ​ 51,510 ​ 50,637 ​ 51,713 Earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.12 ​ $ 0.09 ​ $ 0.32 ​ $ 0.25 Diluted ​ $ 0.11 ​ $ 0.09 ​ $ 0.30 ​ $ 0.23 Comprehensive income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 5,556 ​ $ 4,421 ​ $ 15,443 ​ $ 11,951 Foreign currency translation, net of tax benefit of $ 629 , $ 303 , $ 1,515 , and $ 579 , respectively ​ ( 1,997 ) ​ ( 960 ) ​ ( 4,799 ) ​ ( 1,812 ) Comprehensive income ​ $ 3,559 ​ $ 3,461 ​ $ 10,644 ​ $ 10,139 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. 3 INFORMATION SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in- ​ Treasury ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Stock Loss Deficit Equity Balance June 30, 2022 ​ 49,362 ​ $ 49 ​ $ 232,994 ​ $ ( 10,523 ) ​ $ ( 9,742 ) ​ $ ( 118,586 ) ​ $ 94,192 Net Income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,556 ​ ​ 5,556 Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,997 ) ​ ​ — ​ ​ ( 1,997 ) Treasury shares repurchased ​ — ​ ​ — ​ ​ — ​ ​ ( 4,281 ) ​ ​ — ​ ​ — ​ ​ ( 4,281 ) Proceeds from issuance of ESPP shares ​ — ​ ​ — ​ ​ ( 36 ) ​ ​ 283 ​ ​ — ​ ​ — ​ ​ 247 Issuance of treasury shares for RSUs vested ​ — ​ ​ — ​ ​ ( 5,390 ) ​ ​ 5,390 ​ ​ — ​ ​ — ​ ​ — Accrued dividends on unvested shares ​ — ​ ​ — ​ ​ ( 13 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 13 ) Cash dividends paid to shareholders ($ 0.04 per share) ​ — ​ ​ — ​ ​ ( 2,049 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,049 ) Stock based compensation ​ — ​ ​ — ​ ​ 1,987 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,987 Balance September 30, 2022 49,362 ​ $ 49 ​ $ 227,493 ​ $ ( 9,131 ) ​ $ ( 11,739 ) ​ $ ( 113,030 ) ​ $ 93,642 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in- ​ Treasury ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Stock Loss Deficit Equity Balance December 31, 2021 ​ 49,362 ​ $ 49 ​ $ 237,628 ​ $ ( 3,871 ) ​ $ ( 6,940 ) ​ $ ( 128,473 ) ​ $ 98,393 Net Income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 15,443 ​ ​ 15,443 Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 4,799 ) ​ ​ — ​ ​ ( 4,799 ) Treasury shares repurchased ​ — ​ ​ — ​ ​ — ​ ​ ( 15,804 ) ​ ​ — ​ ​ — ​ ​ ( 15,804 ) Proceeds from issuance of ESPP shares ​ — ​ ​ — ​ ​ ( 136 ) ​ ​ 831 ​ ​ — ​ ​ — ​ ​ 695 Issuance of treasury shares for RSUs vested ​ — ​ ​ — ​ ​ ( 9,713 ) ​ ​ 9,713 ​ ​ — ​ ​ — ​ ​ — Accrued dividends on unvested shares ​ — ​ ​ — ​ ​ ( 270 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 270 ) Cash dividends paid to shareholders ($ 0.11 per share) ​ — ​ ​ — ​ ​ ( 5,448 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 5,448 ) Stock based compensation ​ — ​ ​ — ​ ​ 5,432 ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,432 Balance September 30, 2022 49,362 ​ $ 49 ​ $ 227,493 ​ $ ( 9,131 ) ​ $ ( 11,739 ) ​ $ ( 113,030 ) ​ $ 93,642 ​ 4 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in- ​ Treasury ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Stock Loss Deficit Equity Balance June 30, 2021 ​ 49,362 ​ $ 49 ​ $ 243,710 ​ $ ( 4,883 ) ​ $ ( 5,523 ) ​ $ ( 136,472 ) ​ $ 96,881 Net Income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4,421 ​ ​ 4,421 Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 960 ) ​ ​ — ​ ​ ( 960 ) Treasury shares repurchased ​ — ​ ​ — ​ ​ — ​ ​ ( 2,142 ) ​ ​ — ​ ​ — ​ ​ ( 2,142 ) Proceeds from issuance of ESPP shares ​ — ​ ​ — ​ ​ 26 ​ ​ 136 ​ ​ — ​ ​ — ​ ​ 162 Issuance of treasury shares for RSUs vested ​ — ​ ​ — ​ ​ ( 4,289 ) ​ ​ 4,289 ​ ​ — ​ ​ — ​ ​ — Issuance of common stock for RSUs vested ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Accrued dividends on unvested shares ​ — ​ ​ — ​ ​ ( 95 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 95 ) Cash dividends paid to shareholders ($ 0.03 per share) ​ — ​ ​ — ​ ​ ( 1,489 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,489 ) Stock based compensation ​ — ​ ​ — ​ ​ 1,499 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,499 Balance September 30, 2021 49,362 ​ $ 49 ​ $ 239,362 ​ $ ( 2,600 ) ​ $ ( 6,483 ) ​ $ ( 132,051 ) ​ $ 98,277 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in- ​ Treasury ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Stock Loss Deficit Equity Balance December 31, 2020 ​ 48,297 ​ $ 48 ​ $ 248,018 ​ $ ( 256 ) ​ $ ( 4,671 ) ​ $ ( 144,002 ) ​ $ 99,137 Net income — ​ — ​ — ​ — ​ — ​ 11,951 ​ 11,951 Other comprehensive income — ​ — ​ — ​ — ​ ( 1,812 ) ​ — ​ ( 1,812 ) Treasury shares repurchased — ​ — ​ — ​ ( 13,358 ) ​ — ​ — ​ ( 13,358 ) Proceeds from issuance of ESPP shares — ​ — ​ 47 ​ 402 ​ — ​ — ​ 449 Issuance of treasury shares ​ — ​ ​ — ​ ​ ( 10,612 ) ​ ​ 10,612 ​ — ​ — ​ — Issuance of common stock for RSUs vested ​ 1,065 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — Accrued dividends on unvested shares ​ — ​ ​ — ​ ​ ( 225 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 225 ) Cash dividends paid to shareholders ($ 0.06 per share) ​ — ​ ​ — ​ ​ ( 2,940 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,940 ) Stock based compensation — ​ — ​ 5,075 ​ ​ — ​ — ​ — ​ 5,075 Balance September 30, 2021 49,362 $ 49 $ 239,362 ​ $ ( 2,600 ) ​ $ ( 6,483 ) ​ $ ( 132,051 ) ​ $ 98,277 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 5 INFORMATION SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ 2022 2021 Cash flows from operating activities ​ ​ ​ ​ ​ ​ Net income ​ $ 15,443 ​ $ 11,951 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Depreciation expense ​ 2,292 ​ 1,961 Amortization of intangible assets ​ 1,580 ​ 2,001 Deferred tax benefit from stock issuances ​ ( 1,248 ) ​ ( 2,155 ) Amortization of deferred financing costs ​ 257 ​ 267 Stock-based compensation ​ 5,432 ​ 5,075 Change in fair value of contingent consideration ​ ​ 1,420 ​ ​ 113 Provisions (benefits) for accounts receivable ​ ​ 314 ​ ​ ( 152 ) Deferred tax provision ​ 1,426 ​ 2,873 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable and contract assets ​ ( 6,763 ) ​ 1,889 Prepaid expense and other assets ​ 623 ​ 1,718 Accounts payable ​ ( 6,853 ) ​ 4,080 Contract liabilities ​ 7 ​ 1,863 Accrued expenses and other liabilities ​ ( 9,335 ) ​ 7,980 Net cash provided by operating activities ​ 4,595 ​ 39,464 Cash flows from investing activities ​ ​ ​ ​ ​ ​ Purchase of furniture, fixtures and equipment ​ ( 2,614 ) ​ ( 1,500 ) Net cash used in investing activities ​ ( 2,614 ) ​ ( 1,500 ) Cash flows from financing activities ​ ​ ​ ​ ​ ​ Principal payments on borrowings ​ ( 3,225 ) ​ ( 3,225 ) Proceeds from issuance of employee stock purchase plan shares ​ 695 ​ ​ 449 Payments related to tax withholding for stock-based compensation ​ ( 3,734 ) ​ ( 6,738 ) Payment of contingent consideration ​ ​ ( 1,000 ) ​ ​ — Cash dividends paid to shareholders ​ ​ ( 5,448 ) ​ ​ ( 2,940 ) Treasury shares repurchased ​ ( 12,070 ) ​ ( 13,358 ) Net cash used in financing activities ​ ( 24,782 ) ​ ( 25,812 ) Effect of exchange rate changes on cash ​ ( 4,983 ) ​ ( 1,383 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ​ ( 27,784 ) ​ 10,769 Cash, cash equivalents , and restricted cash, beginning of period ​ 47,609 ​ 43,825 Cash, cash equivalents , and restricted cash , end of period ​ $ 19,825 ​ $ 54,594 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures of cash flow information: ​ ​ ​ ​ ​ ​ Cash paid for: ​ ​ ​ ​ ​ ​ Interest ​ $ 1,543 ​ $ 1,496 Taxes, net of refunds ​ $ 10,761 ​ $ 2,622 ​ ​ ​ ​ ​ ​ ​ Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ Issuance of treasury stock for vested restricted stock awards ​ $ 9,713 ​ $ 10,612 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 6 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (tabular amounts in thousands, except per share data) (unaudited) ​ NOTE 1—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS ​ Information Services Group, Inc. (the “Company”, or “ISG”) is a leading global technology research and advisory firm. A trusted business partner to over 800 clients, including more than 75 of the top 100 enterprises in our markets, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; technology strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. ​ NOTE 2—BASIS OF PRESENTATION ​ The accompanying unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are considered necessary for a fair statement of the financial position of the Company as of September 30, 2022 and the results of operations for the three and nine months ended September 30, 2022 and 2021 and the cash flows for the nine months ended September 30, 2022 and 2021. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the Company’s audited consolidated financial statements. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. ​ Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with GAAP have been omitted from these interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2021, which are included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC. ​ NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ​ Use of Estimates ​ The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the revenue recognition guidance for contracts in which control is transferred to the customer over time affect the amounts of revenues, expenses, contract assets and contract liabilities. Numerous internal and external factors can affect estimates. Estimates are also used for but not limited to: allowance for doubtful accounts, useful lives of furniture, fixtures and equipment and definite lived intangible assets, depreciation expense, fair value assumptions in evaluating goodwill for impairment, income taxes and deferred tax asset valuation, and the valuation of stock-based compensation. ​ Restricted Cash ​ Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits and are not available for general corporate purposes. 7 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ ​ Fair Value ​ The carrying value of the Company’s cash and cash equivalents, receivables, accounts payable, other current liabilities, and accrued interest approximated their fair values at September 30, 2022 and December 31, 2021 due to the short-term nature of these accounts. ​ Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would primarily consist of measurements to contingent consideration in a business combination. ​ Fair value is the price that would be received upon a sale of an asset or paid upon a transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). Market participants can use market data or assumptions in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. Under the fair-value hierarchy: ​ ● Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market; ​ ● Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and ​ ● Level 3 measurements include those that are unobservable and of a highly subjective measure. ​ The following tables summarize the assets and liabilities (as applicable) measured at fair value on a recurring basis at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basis of Fair Value Measurements ​ ​ ​ September 30, 2022 ​ ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents $ 18 $ — $ — $ 18 ​ Total $ 18 $ — $ — $ 18 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basis of Fair Value Measurements ​ ​ ​ December 31, 2021 ​ ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents $ 1,018 $ — $ — $ 1,018 ​ Total $ 1,018 $ — $ — $ 1,018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration (1) $ — $ — $ 2,420 $ 2,420 ​ Total $ — $ — $ 2,420 $ 2,420 ​ (1) Contingent consideration is included in “Accrued expenses and other current liabilities” as of December 31, 2021. 8 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ ​ The contingent consideration associated with the 2020 acquisition of Neuralify was fully paid in July 2022. ​ The following table represents the change in the contingent consideration liability during the nine months ended September 30, 2022: ​ ​ ​ ​ ​ ​ Nine Months Ended ​ September 30, ​ 2022 Beginning Balance ​ $ 2,420 Neuralify earnout adjustment (1) ​ ( 1,420 ) Neuralify earnout payment ​ ( 1,000 ) Ending Balance ​ $ — (1) Neuralify earnout adjustment relates to a change in the achievement of a certain milestone specific to the acquisition. ​ The Company’s financial instruments include outstanding borrowings of $ 71.3 million at September 30, 2022 and $ 74.5 million at December 31, 2021, which are carried at amortized cost. The fair value of debt is classified within Level 3 of the fair value hierarchy. The fair value of the Company's outstanding borrowings is approximately $ 69.1 million and $ 73.6 million at September 30, 2022 and December 31, 2021, respectively. The fair values of debt have been estimated using a discounted cash flow analysis based on the Company's incremental borrowing rate for similar borrowing arrangements. The incremental borrowing rate used to discount future cash flows is 5.3 % and 2.0 % at September 30, 2022 and December 31, 2021, respectively. The Company also considered recent transactions of peer group companies for similar instruments with comparable terms and maturities as well as an analysis of current market conditions. ​ Recently Issued Accounting Pronouncements ​ In June 2016, the FASB issued new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable, and available-for-sale debt securities. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses and additional disclosures. As a smaller reporting company, this guidance is effective for fiscal years beginning after December 15, 2022, which is not expected to have a material impact on the Company’s consolidated financial statements. ​ ​ NOTE 4 — ACQUISITIONS ​ Neuralify Acquisition ​ On July 8, 2020, a subsidiary of the Company executed an Asset Purchase Agreement with Neuralify, LLC (“the Agreement”), a firm focused on intelligent automation enablement solutions and services, and consummated the acquisition of substantially all of the assets and assumed certain liabilities of Neuralify, LLC. The primary reason for the acquisition was to expand the capabilities of ISG’s pure-play automation service line, ISG Automation. The purchase price was comprised of $ 2.3 million of cash consideration paid at closing and certain former employees of Neuralify, LLC also had the right to receive additional consideration paid via earn-out payments during the next 18 months , if certain financial targets were met. In October 2021, the 18 -month period was extended six months to July 2022. On the date of the Agreement, the Company estimated such earn-out payments would be up to $ 4.9 million. ​ The following table summarizes the consideration transferred to acquire Neuralify, LLC and the amounts of identified assets acquired, and liabilities assumed, as of the Agreement date: 9 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ ​ ​ ​ ​ ​ Cash $ 2,282 Contingent consideration ​ 4,900 Total allocable purchase price ​ $ 7,182 ​ The primary factors that drove the goodwill recognized, the majority of which is deductible for tax purposes, are the inclusion of legacy Neuralify workforce and know-how which expands the Company’s pure-play automation service line, ISG Automation. ​ This business combination was accounted for under the acquisition method of accounting, and as such, the aggregate purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values as of the closing date. Based on the valuation and other factors as described above, the purchase price assigned to intangible assets were as follows: ​ ​ ​ ​ ​ Accounts receivable ​ $ 226 Contract assets ​ 1 Intangible assets ​ 1,970 Accounts payable ​ ( 79 ) Contract liabilities ​ ( 280 ) Net assets acquired ​ $ 1,838 ​ ​ ​ ​ Goodwill ​ $ 5,344 ​ Agreemint Acquisition ​ On March 28, 2022, ISG executed an asset purchase agreement for the purchase of substantially all of the assets of Agreemint, which is an automated, platform-based contracting solution that will enhance the value of ISG GovernX and our other platform solutions now in development. We determined the transaction to be an asset acquisition, as substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset: the software and related intellectual property rights. The cash paid for the acquisition as of the balance sheet date is reflected in Cash flows from investing activities of the Statement of Cash Flows. The related software acquired, which is capitalized within “Furniture, fixtures and equipment, net”, will be depreciated over four years when put into service at the end of the transition period underway to integrate the offering with our ISG GovernX cloud solution. ​ ​ NOTE 5—REVENUE ​ The majority of our revenue is derived from contracts that can span from a few months to several years. We enter into contracts that can include various combinations of services, which, depending on contract type, are sometimes capable of being distinct. If services are determined to be distinct, they are accounted for as separate performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the client and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For contracts with multiple performance obligations, including our managed service (GovernX) implementation, software and implementation, and research and subscription contracts, the Company allocates the transaction price to each performance obligation using our best estimate of the standalone selling price, or SSP, of each distinct good or service in the contract. ​ 10 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ Our contracts may include promises to transfer multiple services and products to a client. Determining whether services and products are considered distinct performance obligations that should be accounted for separately versus together may require judgment. ​ Contract Balances ​ The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities). Our clients are billed based on the type of arrangement. A portion of our services is billed monthly based on hourly or daily rates. There are also client engagements in which we bill a fixed amount for our services. This may be one single amount covering the whole engagement or several amounts for various phases, functions, or milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits before revenue is recognized, resulting in contract liabilities. Contract assets and liabilities are generally reported in the current assets and current liabilities sections of the consolidated balance sheet, at the end of each reporting period, based on the timing of the satisfaction of the related performance obligation(s). For multi-year software sales with annual invoicing, we perform a significant financing component calculation and recognize the associated interest income throughout the duration of the financing period. In addition, we reclassify the resulting contract asset balances as current and noncurrent receivables as receipt of the consideration is conditional only on the passage of time and there are no performance risk factors present. See the table below for a breakdown of contract assets and contract liabilities. ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ 2022 2021 Contract assets ​ $ 28,584 ​ $ 18,639 Contract liabilities ​ $ 7,056 ​ $ 7,049 ​ Revenue recognized for the three and nine months ended September 30, 2022 that was included in the contract liability balance at January 1, 2022 was $ 0.7 million and $ 6.4 million, respectively, and represented primarily revenue from our fixed fee and subscription contracts. Remaining Performance Obligations As of September 30, 2022, the Company had $ 123.4 million of remaining performance obligations, the majority of which are expected to be satisfied within the next twelve months. NOTE 6—NET INCOME PER COMMON SHARE ​ Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would share in the net income of the Company. For both the three and nine months ended September 30, 2022, 0.0 million restricted stock units, respectively, have not been considered in the diluted earnings per share calculation, as the effect would be anti-dilutive. ​ 11 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ The following tables set forth the computation of basic and diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2022 2021 Basic: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 5,556 ​ $ 4,421 ​ $ 15,443 ​ $ 11,951 Weighted average common shares ​ 47,888 ​ 48,751 ​ 48,191 ​ 48,521 Earnings per share ​ $ 0.12 ​ $ 0.09 ​ $ 0.32 ​ $ 0.25 Diluted: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 5,556 ​ $ 4,421 ​ $ 15,443 ​ $ 11,951 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic weighted average common shares ​ 47,888 ​ 48,751 ​ 48,191 ​ 48,521 Potential common shares ​ 1,956 ​ 2,759 ​ 2,446 ​ 3,192 Diluted weighted average common shares ​ 49,844 ​ 51,510 ​ 50,637 ​ 51,713 Diluted earnings per share ​ $ 0.11 ​ $ 0.09 ​ $ 0.30 ​ $ 0.23 ​ ​ NOTE 7—INCOME TAXES ​ The Company’s effective tax rate for the three and nine months ended September 30, 2022 was 18.0 % and 25.4 % based on pretax income of $ 6.8 million and $ 20.7 million, respectively. The Company’s effective tax rate for the quarter ended September 30, 2022 was impacted by the earnings and losses in certain foreign jurisdictions and the impact of vesting of restricted stock units. The Company’s effective tax rate for the three and nine months ended September 30, 2021 was 34.9 % and 27.7 %. The difference was primarily due to the impact of earnings and losses in certain foreign jurisdictions and the impact of vesting of restricted stock units. NOTE 8—COMMITMENTS AND CONTINGENCIES ​ The Company is subject to contingencies which arise through the ordinary course of business. All material liabilities of which management is aware are properly reflected in the financial statements at September 30, 2022 and December 31, 2021. ​ NOTE 9—SEGMENT AND GEOGRAPHICAL INFORMATION ​ The Company operates as one reportable segment consisting primarily of fact-based sourcing advisory services. The Company operates principally in the Americas, Europe and Asia Pacific. ​ Geographical revenue information for the segment is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2022 2021 2022 2021 Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Americas ​ $ 42,174 ​ $ 42,825 ​ $ 123,059 ​ $ 121,254 Europe ​ 19,321 ​ 20,138 ​ 66,039 ​ 66,595 Asia Pacific ​ 7,341 ​ 8,132 ​ 23,002 ​ 20,414 ​ ​ $ 68,836 ​ $ 71,095 ​ $ 212,100 ​ $ 208,263 ​ 12 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ The segregation of revenues by geographic region is based upon the location of the legal entity performing the services. The Company does not measure or monitor gross profit or operating income by geography or by service line for the purposes of making operating decisions or allocating resources. ​ NOTE 10—FINANCING ARRANGEMENTS AND LONG-TERM DEBT ​ On March 10, 2020, the Company amended and restated its senior secured credit facility to include a $ 86.0 million term facility and to increase the revolving commitments per the revolving facility (as amended by that certain First Amendment to Credit Agreement, dated as of June 1, 2022, the “2020 Credit Agreement”) from $ 30.0 million to $ 54.0 million. The material terms under the 2020 Credit Agreement are as follows: ● Each of the term loan facility and revolving credit facility has a maturity date of March 10, 2025 (the “Maturity Date”). ● The credit facility is secured by all of the equity interests owned by the Company, and its direct and indirect domestic subsidiaries and, subject to agreed exceptions, the Company’s direct and indirect “first-tier” foreign subsidiaries and a perfected first priority security interest in all of the Company’s and its direct and indirect domestic subsidiaries’ tangible and intangible assets. ● The Company’s direct and indirect existing and future wholly owned domestic subsidiaries serve as guarantors to the Company’s obligations under the senior secured facility. ● At the Company’s option, the credit facility bears interest at a rate per annum equal to either (i) the “Base Rate” (which is the highest of (a) the rate publicly announced from time to time by the administrative agent as its “prime rate”, (b) the Federal Funds Rate plus 0.5 % per annum and (c) the Eurodollar Rate, plus 1.0 % ), plus the applicable margin (as defined below) or (ii) Eurodollar Rate (adjusted for maximum reserves) as determined by the Administrative Agent, plus the applicable margin. The applicable margin is adjusted quarterly based upon the Company’s quarterly leverage ratio. ● The term loan is repayable in nineteen consecutive quarterly installments of $ 1,075,000 each that commenced on June 30, 2020 and a final payment of the outstanding principal amount of the term loan on the Maturity Date. ● Mandatory repayments of term loans shall be required from (subject to agreed exceptions) (i) 100 % of the net proceeds from issuances of debt and equity by the Company and its subsidiaries and (ii) 100 % of the net proceeds from insurance recovery and condemnation events of the Company and its subsidiaries. ● The senior secured credit facility contains a number of covenants that, among other things, place restrictions on matters customarily restricted in senior secured credit facilities, including restrictions on indebtedness (including guarantee obligations), liens, fundamental changes, sales or disposition of property or assets, investments (including loans, advances, guarantees and acquisitions), transactions with affiliates, dividends and other payments in respect of capital stock, optional payments and modifications of other material debt instruments, negative pledges and agreements restricting subsidiary distributions and changes in line of business. In addition, the Company is required to comply with a total leverage ratio and fixed charge coverage ratio. ● The senior secured credit facility contains customary events of default, including cross-default to other material agreements, judgment default and change of control. The Company’s financial statements include outstanding borrowings of $ 71.3 million and $ 74.5 million at September 30, 2022 and December 31, 2021, respectively, which are carried at amortized cost. The fair value of debt is classified within Level 3 of the fair value hierarchy. The fair value of the Company's outstanding borrowings is approximately $ 69.1 million and $ 73.6 million at September 30, 2022 and December 31, 2021, respectively. The fair values of debt have been 13 INFORMATION SERVICES GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued) (tabular amounts in thousands, except per share data) (unaudited) ​ estimated using a discounted cash flow analysis based on the Company's incremental borrowing rate for similar borrowing arrangements. The incremental borrowing rate used to discount future cash flows is 5.3 % and 2.0 % at September 30, 2022 and December 31, 2021, respectively. The Company also considered recent transactions of peer group companies for similar instruments with comparable terms and maturities as well as an analysis of current market conditions and interest rates. As of September 30, 2022 and December 31, 2021, there were no outstanding borrowings under the revolver. ​ The Company is currently in compliance with its financial covenants. ​ NOTE 11—SUBSEQUENT EVENT ​ On October 31, 2022, a subsidiary of the Company executed an Asset Purchase Agreement with Change 4 Growth, LLC and consummated the acquisition of substantially all of the assets, and assumed certain liabilities, of Change 4 Growth, LLC. The purchase price was comprised of $ 3.0 million of cash consideration paid at closing, $ 0.6 million of shares of ISG common stock issued promptly after closing and Change 4 Growth, LLC will also have the right to receive additional consideration paid via earn-out payments during the next 26 months , if certain financial targets are met. ​ ​ ​ 14 ​